Correlation Between Vanguard FTSE and United States

Can any of the company-specific risk be diversified away by investing in both Vanguard FTSE and United States at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard FTSE and United States into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard FTSE Developed and United States Oil, you can compare the effects of market volatilities on Vanguard FTSE and United States and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard FTSE with a short position of United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard FTSE and United States.

Diversification Opportunities for Vanguard FTSE and United States

0.67

Correlation Coefficient

Vanguard FTSE  United States

Poor diversification

The 3 months correlation between Vanguard and United is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and United States Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Oil and Vanguard FTSE is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard FTSE Developed are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Oil has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and United States go up and down completely randomly.

Pair Corralation between Vanguard FTSE and United States

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to generate 0.52 times more return on investment than United States. However, Vanguard FTSE Developed is 1.93 times less risky than United States. It trades about 0.04 of its potential returns per unit of risk. United States Oil is currently generating about 0.01 per unit of risk. If you would invest  4,144  in Vanguard FTSE Developed on January 25, 2024 and sell it today you would earn a total of  743.00  from holding Vanguard FTSE Developed or generate 17.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Vanguard FTSE Developed  vs.  United States Oil

Vanguard FTSE Developed

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

United States Oil

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United States Oil are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, United States may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Vanguard FTSE and United States

The main advantage of trading using opposite Vanguard FTSE and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard FTSE position performs unexpectedly, United States can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in United States will offset losses from the drop in United States' long position.

The idea behind Vanguard FTSE Developed and United States Oil pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Investment Finder module to use AI to screen and filter profitable investment opportunities.